JPY: Bank of Japan adds to reasons to stay bearish yen

The Bank of Japan (BOJ) kept the policy settings unchanged at the April meeting, as expected. But the statement managed to surprise dovish yet again.

• The short-term interest rate was kept unchanged at between 0% to 0.1% as expected
• It said it would continue buying JGBs, CP and corporate bonds in line with its March policy decision. However, it removed its previous footnote referring to a monthly purchasing amount of 6 trillion yen.
• The BOJ raised its outlook for CPI ex-fresh food for the current 2024 fiscal year to 2.8% from a previous 2.4%.
• There was no clear statement expressing concern on FX moves, or a mention of QE tapering.
• Bond buying was tweaked, but the statement only said that the BOJ will continue buying JGBs and corporate bonds in line with its March policy decision. There was no clear mention of the amount, which previously stood at 6 trillion yen per month, or the timing. In the presser, Governor Ueda also said that there was no opposition at the meeting to continue with the purchases at that level. This would put any speculations around QE tapering to rest for now.

Market implications

• Yet again, the BOJ managed to surprise dovish. Governor Ueda’s comments at the press conference lacked an urgency on FX. In fact, Ueda said that the yen is not having a big impact on inflation.
• Markets will likely be reaffirmed in their belief of the carry, and continue to test the limit of yen weakness.
• USDJPY could see an accelerated move towards 158-160, with Kanda's comments of a 10 yen move in a month as a threshold for intervention giving room for further upside. For more on this, read our previous article on JPY here.
• US PCE on the radar, and we are back to waiting for an intervention to stop the rout in the yen. But any intervention, if not coordinated and without the support of a hawkish policy messaging, will still be futile.
• Still, the NY close is the time to watch for an intervention today, as liquidity is low going into a long weekend in Japan.
• There is also likely to be some profit taking ahead of the close amid intervention risks.
• However, markets will continue to fade any yen strengthening on the back of an intervention with Fed meeting and Treasury’s Quarterly Refunding announcement due next week likely to keep US rates volatile.